Ship Acquisition, Financing and Leasing (SAFAL): IFSC Report

• 04 Dec 2021

Why in News

Recently, the report titled Ship Acquisition, Financing and Leasing (SAFAL) was submitted by the Committee for Development of Avenues for Ship Acquisition, Financing and Leasing to the International Financial Services Centres Authority (IFSCA).

Key Points

• About the Committee:
  
  • Formation: It was constituted by IFSCA in June 2021 with representatives from the Government of India, Gujarat Maritime Board, industry and finance experts, and academicians.
  • Objective: Focus remained on enabling cost-effective and competitive delivery of shipping services on ships owned and leased from India-offshore IFSC which is on par with overseas competitors.
• Observations of the Committee:
  
  • Net Importer of Shipping Services: Despite having a large coastline, growing domestic market and international seaborne trade, deep-rooted maritime traditions, and skilled seafarers, India continues to have a smaller share in the international shipping sector, thus becoming a net importer of shipping services especially ship finance.
  • Required Changes: It has presented the critical and necessary changes required to bring this greenfield venture to India IFSC.
    
    • These cover legal and regulatory domains, direct and indirect taxes, ship finance, and ease of doing business drawing upon global best practices.
  • Imparting Brand Value: It finds that the time is opportune for imparting a brand value to Indian-flagged vessels.
    
    • This can be done by carving out a share in global cross trades, securing gainful transactions for India’s marketplace, promoting decarbonization and greening of the blue oceans, and leveraging India-IFSC Maritime for achieving the Maritime India Vision 2030 and beyond.
      
      • Maritime India Vision 2030 is a ten-year blueprint for the maritime sector which was released by the Prime Minister of India at the Maritime India Summit in November 2020.
      • It will supersede the Sagarmala initiative and aims to boost waterways, give a fillip to the shipbuilding industry and encourage cruise tourism in India.
• Importance of the Shipping Sector for India:
  
  • Nearly half of India’s border is covered by sea, with a coastline of about 7,517 km, with 12 major and 205 minor ports.
    
    • India is also strategically located on the world’s shipping routes.
  • It is estimated that about 95% of India’s goods trade by volume and 70% by value is done through maritime transport.
  • India has significant exposure to maritime freight rate. Seaborne freight is estimated to be $85 billion annually.
    
    • The share of Indian ships in carrying India’s export-import cargo was about 6.53% in FY 2019-20.
    • Each year India is estimated to pay about $75 billion seaborne freight to foreign shipping companies.
    • India is thus well placed to step up its investment in the shipping industry.
• Related Measures taken by the Government:
  
  • Revision of the criteria for Right of First Refusal (ROFR): The criteria for granting the Right of First Refusal in chartering of vessels through tender process has been revised, for promoting tonnage under Indian flag and ship-building in India, so as to make India a Atmanirbhar/self-reliant in terms of tonnage and ship-building in India.
  • Subsidy Support to Indian Shipping Companies: A scheme for the promotion of flagging of merchant ships in India by providing Rs.1624 crore over a period of five years as subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs has been approved by the Cabinet.
  • Ship Building Financial Assistance Policy (2016-2026): Government of India approved the Financial Assistance Policy for Indian Shipyards in December 2015, for grant of financial assistance to Indian Shipyards.

International Financial Services Centre (IFSC)

• An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of Financial Institutions (such as banks, insurance companies, etc.) to India.
  
  • It offers a business and regulatory environment that is comparable to other leading international financial centres in the world like London and Singapore.
• IFSCs are intended to provide Indian corporates with easier access to global financial markets, and to complement and promote further development of financial markets in India.
• The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.
• The central government has established the International Financial Services Centres Authority to regulate all financial services in International Financial Services Centres (IFSCs) with headquarters in Gandhinagar (Gujarat).

Source: PIB